Mr. Donald Tremblay reports

TRANSALTA CORPORATION FILES MANAGEMENT INFORMATION CIRCULAR RELATING TO THE PROPOSED PREFERRED SHARE EXCHANGE AND ANNOUNCES ADJUSTMENT TO SERIES A OFFER PREMIUM

TransAlta Corp. has filed a management information circular with respect to the previously announced transaction pursuant to which all the currently outstanding first preferred shares in the capital of the corporation are proposed to be exchanged for shares in a single new series of cumulative redeemable minimum rate-reset first preferred shares, Series 1, in the capital of the corporation, pursuant to a plan of arrangement.

Following the announcement of the proposed arrangement, the corporation decided to increase the premium on the Series A preferred shares resulting in an increase in the exchange ratio for the Series A preferred shares to 0.530, which represents an implied offer premium of 10.9 per cent relative to the Dec. 16, 2016, closing price for the Series A preferred shares on the Toronto Stock Exchange. This increase more appropriately aligns the premium offered to Series A preferred shareholders to the premium offered to holders of other series of existing preferred shares. The corporation believes this adjustment will increase preferred shareholder support of the proposed arrangement while maintaining fairness for holders of all other series of existing preferred shares.

The exchange ratios of the Series B preferred shares, Series C preferred shares, Series E preferred shares and Series G preferred shares remain unchanged at 0.550, 0.705, 0.790 and 0.820, respectively. These ratios provide premiums in the range of 13 per cent to 17 per cent.

"TransAlta believes the proposed transaction will deliver many benefits to existing preferred shareholders and will contribute to the ongoing capital repositioning of the corporation," commented Donald Tremblay, chief financial officer of the corporation.

The special meetings at which holders of existing preferred shares of each series will consider and, if thought fit, approve a special resolution approving the arrangement are scheduled for Feb. 16, 2017. Holders of record on Dec. 27, 2016, will receive the information circular and accompanying proxy materials in the coming days. TransAlta encourages preferred shareholders to carefully review the meeting materials as they contain further detail in regard to the arrangement.

If completed, the arrangement is expected to provide several benefits to preferred shareholders, including:

• Minimum-floor feature reduces dividend volatility: Dividend volatility is expected to be reduced as a result of the downside protection provided under the terms of the Series 1 preferred shares, which will include a minimum-floor feature that ensures the dividend rate will be no lower than 6.50 per cent per annum. The existing preferred shares currently do not include this minimum-floor feature as it is a relatively new feature for preferred shares issued in the Canadian market.
• Attractive 6.50-per-cent dividend rate: The 6.50-per-cent dividend payable on the Series 1 preferred shares would result in an increased dividend for all series of existing preferred shares ranging from 3 per cent to 23 per cent, assuming they would reset at current interest-rate levels over the next five years. Additionally, the 6.50-per-cent dividend rate is slightly higher than the dividend rate for other similarly rated preferred share issuances in the Canadian market. Please refer to the attached table for details of the increases in dividend payment.
• Reset spread substantially increased for all series: The reset spread for the new preferred shares is 529 basis points, which compare favourably with the reset spreads for the existing preferred shares that range from 369 basis points to 463 basis points (adjusted to give effect to the applicable exchange ratio), representing a 14-per-cent to 43-per-cent increase depending on the series. This reset spread is added to the government of Canada yield or quarterly T-bill rate at the time of reset to determine subsequent preferred share dividends. Please refer to the attached table for details of the increases in reset spreads.
• Implied offer premium ranges from 11 per cent to 17 per cent: In addition to the minimum-floor protection, the arrangement also offers a premium of 11 per cent to 17 per cent depending on the series of existing preferred shares held (based on their respective trading values on Dec. 16, 2016, the last trading day on the Toronto Stock Exchange prior to the announcement of the arrangement). The premium reflects the percentage increase of the deemed value of the Series 1 preferred shares over the trading price of the applicable series of existing preferred shares after adjusting for the applicable exchange ratio. Please refer to the attached table for details of the calculations.
• Consolidation of existing preferred shares into one series benefits trading liquidity: The completion of the arrangement in its entirety will consolidate the existing preferred shares into one larger series of new preferred shares. Trading liquidity is expected to be enhanced, as the consolidation of the existing preferred shares into one series of new preferred shares is expected to provide holders with more flexibility and depth in the market to buy and sell such new preferred shares.
• Tax flexibility for preferred shareholders: The arrangement provides an automatic tax-deferred exchange for Canadian federal income tax purposes to the existing preferred shareholders; however, existing preferred shareholders may alternatively elect to have the exchange occur in a manner that may allow the preferred shareholder to realize a capital gain or a capital loss for Canadian federal income tax purposes. As a result, the arrangement affords flexibility in tax planning for preferred shareholders.
• Fairness opinion: PricewaterhouseCoopers LLP provided its fairness opinion that, as at Dec. 19, 2016, and subject to the qualifications, including the scope of review, limitations and assumptions set forth in the fairness opinion, the proposed exchange of existing preferred shares in accordance with the arrangement is fair, from a financial point of view, to the holders of each series of existing preferred shares.
• Unanimous board recommendation: The board of directors of TransAlta unanimously recommends that the holders of each series of existing preferred shares vote in favour of the arrangement.

                                                 CALCULATIONS

                                                 Series A       Series B       Series C       Series E       Series G

Number of shares outstanding                   10,175,380      1,824,620     11,000,000      9,000,000      6,600,000
Preannouncement closing price (Dec. 16, 2016)      $11.95         $11.75         $15.57         $16.99         $18.07
Exchange ratio                                      0.530          0.550          0.705          0.790          0.820
Equivalent exchanged price (1)                     $22.55         $21.36         $22.09         $21.51         $22.04
Series 1 issue price                               $25.00         $25.00         $25.00         $25.00         $25.00
Offer premium (2)                                    10.9%          17.0%          13.2%          16.2%          13.4%
Closing price of the preferred shares
on Jan. 13, 2017                                   $12.55         $13.31         $17.01         $19.00         $19.87
Current reset spread (bps)                            203            203            310            365            380
Adjusted reset spread for exchange ratio (bps)        383            369            440            462            463
Increase in reset spread                               38%            43%            20%            15%            14%
Preferred share series
Current annual dividend per share (A)               $0.68          $0.63          $1.15          $1.25          $1.33
Five-year average dividend based
on actual reset dates (3) (B)                       $0.70       $0.81(4)          $1.08          $1.22          $1.29
Following completion of the arrangement
Series 1 preferred share annual
dividend (5) (C)                                    $0.86          $0.89          $1.15          $1.28          $1.33
Increase in annual dividend over
five-year average (%) (C-B/B)                          23%            10%             6%             5%             3%

Notes:
(1) Equivalent exchanged price is calculated by dividing the trading price of each
series of preferred shares on Dec. 16, 2016, by the applicable exchange ratio. 
(2) Premium calculated by multiplying the $25 issue price of Series 1 preferred 
shares by the applicable exchange ratio for each series of existing preferred 
shares and dividing this total by the trading price of the applicable series of
existing preferred share on Dec. 16, 2016.                          
(3) Average expected annual dividend over the next five years from each series of 
existing preferred shares, assuming they reset at the next reset dates for a 
subsequent five-year fixed-rate period and based on the government of Canada yield
as at market close on Dec. 16, 2016, the last trading day on the Toronto Stock 
Exchange prior to the announcement of the arrangement. See risk factors relating 
to the arrangement -- dividends -- in the information circular.                  
(4) The five-year average dividend based on actual reset dates for the Series B 
shares is calculated based on the government of Canada yield as at market close 
on Dec. 16, 2016, the last trading day on the TSX prior to the announcement 
of the arrangement, notwithstanding the quarterly dividend rate for the Series B 
preferred shares being based in reference to the T-bill rate. See risk factors 
relating to the arrangement -- dividends -- in the information circular.
(5) Adjusted in accordance with the applicable exchange ratios, based on the 
closing price of the existing preferred shares on the TSX on Dec. 16, 2016 (the 
last trading day prior to the announcement of the arrangement).  

The arrangement is also expected to provide a number of anticipated benefits to the corporation, including:

• Improved balance sheet: The arrangement will reduce the carrying value associated with the existing preferred shares on the corporation's balance sheet, which in turn improves some rating agency credit ratios based on the equity treatment given to the existing preferred shares.
• Improved trading yield: The arrangement is expected to improve the liquidity and underlying features of the Series 1 preferred shares (including the minimum-floor feature), which could improve the trading yield and provide a more beneficial benchmark for any subsequent preferred share issuances by TransAlta.
• Enhanced financial flexibility: The arrangement is expected to provide future preferred-share-issuance capacity based on the equity treatment guidelines of the corporation's credit-rating agencies.

If all required conditions to complete the arrangement are received on or before Feb. 21, 2017, and TransAlta has not otherwise determined not to proceed with the arrangement, TransAlta intends to give effect to the arrangement on or before Feb. 21, 2017, and prorate the dividends payable pursuant to the existing preferred shares and the dividends payable pursuant to the Series 1 preferred shares. Specifically, dividends will be paid on the existing preferred shares from Dec. 31, 2016, up to and including the day immediately prior to the effective date of the arrangement, and the dividends payable on the Series 1 preferred shares (after giving effect to the applicable exchange ratio) will be paid from the effective date of the arrangement up to but excluding March 31, 2017. If all required conditions to complete the arrangement are received on or after Feb. 22, 2017, and TransAlta has not otherwise determined not to proceed with the arrangement, TransAlta intends to give effect to the arrangement on March 30, 2017, and pay the dividends payable pursuant to the existing preferred shares in the normal course. Specifically, dividends will be paid on the existing preferred shares from Dec. 31, 2016, up to but excluding March 31, 2017, with dividends payable on the Series 1 preferred shares to commence on March 31, 2017.

About TransAlta

TransAlta is a power generation and wholesale marketing company focused on creating long-term shareholder value. TransAlta maintains a low- to moderate-risk profile by operating a highly contracted portfolio of assets in Canada, the United States and Australia. TransAlta's focus is to efficiently operate wind, hydro, solar, natural gas and coal facilities to provide customers with a reliable, low-cost source of power. For over 100 years, TransAlta has been a responsible operator and a proud contributor to the communities in which it works and lives.

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